Could you shed some light on the expansion of German firms in Vietnam amidst global and regional supply chain realignment?

Peter Kompalla, chief representative of the Delegation of German Industry and Commerce in Vietnam

Our World Business Outlook Fall 2024, which surveyed almost 3,500 German companies worldwide, indicates increasing confidence among German businesses, with around half of them anticipating business growth and 35 per cent planning to increase local investments in 2025 and beyond.

A remarkable 81 per cent of German businesses are positive about and satisfied with their current operations in the country. This reflects Vietnam’s strategic position as a key player in the global supply chain realignment. German firms see Vietnam as a reliable partner due to its stability, integration into international trade agreements, and its role as a manufacturing hub for industries like electronics, machinery, and textiles.

In the context of foreign direct investment cooling fears related to potential US trade policies, Vietnam benefits from its diversification strategy, attracting companies seeking to de-risk operations. German businesses, especially in machinery, renewable energy, and consumer goods, are leveraging Vietnam’s skilled workforce and cost competitiveness. The strong trade ties between Germany and Vietnam, underscored by the EU-Vietnam Free Trade Agreement, further amplify Vietnam’s appeal.

However, Vietnam and Germany share vulnerabilities as open economies exposed to global imbalances. German firms are aware of external risks, such as potential shifts in global demand and economic policies, and they are adapting by fostering regional trade partnerships and localising their operations in Vietnam.

German investment in Vietnam reached new heights in 2024, with direct investment of $2.79 billion by November. What is the reason why behind this?

In 2024, German investment in Vietnam was driven by the latter’s advantages, including political stability, strategic location, and progressive trade agreements. The country’s proactive approach to supply chain diversification and emphasis on sustainability align with the priorities of German firms, particularly in sectors like renewables and advanced manufacturing.

Compared to regional peers, Vietnam stands out for its dual advantages of a growing domestic market and an export-oriented economy. Vietnam offers a compelling mix of competitive labour costs, an emerging middle class, and active government support for industries like green energy.

Vietnam’s consistent reforms to improve its business environment have also positioned it as a preferred destination over some ASEAN neighbours. The combination of these factors makes Vietnam a long-term partner for German investors seeking regional diversification and growth.

What are the potential pros and cons for German businesses in Vietnam in 2025?

There are myriad opportunities for German businesses looking to invest in Vietnam in 2025. Vietnam’s commitment to sustainability and digital transformation opens doors for German companies, particularly in renewable energy, smart manufacturing, and Industry 4.0 solutions.

One concrete example will be the factory automation symposium organised by us in May 2025 in Ho Chi Minh City.

This event will gather key players from German and Vietnamese industries, and will highlight Vietnam’s demand for advanced factory automation solutions, a sector where German expertise excels. The participation of German companies such as Beckhoff Automation, Trumpf, and Würth Industry showcases the growing collaboration between the two countries.

Additionally, Vietnam’s continued infrastructure development and urbanisation create demand for German expertise in construction, logistics, and technology.

However, challenges remain. Vietnam faces a skilled labour shortage, mirroring global trends, which necessitates increased investment in vocational training and talent development.

Furthermore, global uncertainties, such as fluctuating demand and geopolitical risks, may influence some investment decisions. Regulatory transparency and predictability are also critical for maintaining confidence.

Despite these various challenges, German firms remain optimistic but cautious, balancing opportunities with a pragmatic approach to navigating Vietnam’s dynamic market.